Debit cards (also known as “check cards” or “deferred debit cards”) are one of the fastest-growing methods of payments for consumers and small businesses, supplementing and replacing payments made via cash, check or credit card. Debit cards are issued by financial institutions in conjunction with a variety of deposit accounts offered by those financial institutions. These financial accounts include demand deposit accounts, checking accounts, savings accounts, share draft accounts, money market accounts, cash or investment management accounts, and the like. (For the purposes of this application, such accounts will be referred to herein generally as “financial accounts.”) When the cardholder presents the debit card at a merchant to make a purchase, the amount is debited from the financial account either immediately, or within about 1-2 days (as opposed to a credit card, which is billed periodically to the cardholder). Like a credit card, however, the debit card may be employed to make payments at retail establishments, for periodic bills, for on-line, Internet or telephone purchases, etc. Further, the cardholder can use the debit card to perform a number of functions including: withdrawing cash from an Automated Teller Machine, or other electronic devices such as point of banking terminals, as an identification device when conducting a financial transaction at a bank, merchant or other location and to receive cash back as part of a point of sale purchase.
Debit card transactions can be administered in two ways: on-line processing or off-line processing. Off-line processing is similar to traditional credit card processing. Data concerning the transaction, including the identity of the financial institution (i.e., the card issuer), the cardholder identification information, merchant identification information, product information and value information, is transmitted over existing credit card clearance networks, such as MasterCard or Visa. However, unlike a credit card, the payment to the credit card clearinghouse is made relatively promptly (within a few days) by the financial institution.
Alternatively, the debit card transaction may be processed “on-line.” Such on-line processing has historically been used for cash withdrawals from automatic teller machines. In the case of a debit card purchase, the merchant; using an automated terminal connected to an ATM “switch” confirms that there are sufficient funds in the financial account to cover the purchase. An on-line debit to the account is posted or a hold is placed on these funds. Unlike credit card purchases and other off-line purchases, no information regarding the purchase, other than the merchant identification and the purchase amount, is generally recorded.
The debit cards provide consumers with a more convenient and lower-cost method of purchasing goods and services. For consumers, information on purchases can be tracked on the financial account statement. For financial institutions, debit card transactions cost less to process than checks and provide information on the purchase transaction and the cardholder. Such information can be used in a variety of ways including: developing analytical and marketing programs about the cardholder, the purchases and the merchant. For merchants, debit card payments increase the range of payment options available to consumers, and can provide a lower cost and more secure method for accepting payments over cash, checks and in many instances, credit cards. Debit cards can also provide information about cardholder purchase behavior, and provide the ability to extend the financial institution's branding and marketing efforts through co-branding arrangements with various partners and sponsors.